New York Skyline taken in 2015
Getty
The New York state budget officially passed this weekend, and while it did include an increased “mansion” tax—a one-time sales tax on homes sold for more than $25 million—the much-buzzed about “pied-a-terre tax” was nowhere to be seen.
Talks of the tax, which would only apply to non-primary residences valued at over $5 million, resurfaced when billionaire Ken Griffin bought a $238 million Manhattan penthouse earlier this year.
“Enough,” New York City Council Speaker Corey Johnson tweeted after Griffin’s purchase. “It’s time for a pied-a-terre tax. We should tax luxury non-primary residences like this one likely will be. Are you with me?”
The pied-a-terre tax saw backlash from the real estate community, with Pam Liebman, CEO of The Corcoran Group, telling the Wall Street Journal, “If the real-estate market suffers, everybody will suffer. The condos will become rentals. The construction trades will lose out. Nobody will build another building.”
The Citizens Budget Commission—a nonpartisan, nonprofit watchdog group—also came out against the proposed levy, calling it “appealing but problematic.”
Ultimately, it seems New York representatives compromised. Instead of implementing the sliding-scale tax on ultra-luxe second homes, the group upped the state’s existing “mansion tax.” The tax will now start at 1% on homes sold for $1 million or more and max out at 4.15% on home purchases worth $25 million and up.
The budget also includes a new real estate transfer fee which, when combined with the newly increased mansion tax, is expected to produce $365 million in state revenues.
The proposed pied-a-terre tax was predicted to raise $665 million, according to a 2014 Fiscal Policy Institute report. The Regional Plan Association estimated these added revenues would reduce local property tax bills by 3.1%.
Despite the revenue losses, Martin Eiden, a real estate broker with Compass Real Estate in New York, says the increased mansion tax was “more egalitarian” and less “anti-second homeowner” than the proposed pied-a-terre tax.
“This will help New York City remain pro-business and retain its standing as the capital of the world,” Eiden said.
But Frederick Peters, CEO of New York’s Warburg Realty, cautions that the new mansion tax could hinder buyers on the bottom end of the market.
“Raising the mansion tax on $1 million dollar homes will slow sales on one-bedroom apartments, which are hardly mansions,” Peters said. “These buyers, in most cases, are financing their purchase and are on pretty tight budgets. An additional tax might mean that they will have to save for another couple of years and continue renting until they can afford to purchase.”
Because many of these “lower” priced properties are in co-ops or condos, Peters said they also come with a flip tax—usually 1 to 2% of the sales price.